Manufacturing – The Achilles’ heel of the Indian economy
An Achilles’ heel is a weakness in a person, policy, institution, etc. inspite of overall strength, which may lead to their downfall. The Indian economy has performed reasonably strongly in the past two decades, more so in the past 10 years, but the manufacturing sector has been stagnant and has been contributing only 15-16% to GDP since the past 30 years. In fact, the manufacturing sector has also been contracting for some time now, a shocking fact that can be seen in the decrease in Index of Industrial Production (IIP) between Oct 2010 and June 2013. On the other hand, the service sector has grown enormously since the time of economic reforms and has been the fuel for much of the economic growth. Thus inspite of overall strength of the Indian economy and other sectors, manufacturing sector has continued to remain the weakest link and can be rightly said to be its Achilles’ heel.
The problems faced by manufacturing sector are multifarious. Governments at both the centre and in states are responsible for this. Critical infrastructure like roads, railways, ports, continuous and reliable power supply, etc. have not been adequately provided by the centre. At the same time, the absence of an industrial policy after economic liberalization led to a lack of much-needed long-term, coherent and consistent direction to the manufacturing sector. If we look at more recent times, the land acquisition, rehabilitation and resettlement law passed by parliament will also make it difficult and more expensive for the manufacturing sector to acquire land for factories, etc.
Similarly, the state governments have not changed their rigid labour laws which disincentivize small and medium enterprises to grow into large ones. Access to credit has been a major hurdle for micro and small manufacturers to expand their business.
To tackle these problems and to spur the growth in manufacturing sector in general, the government has taken a few bold initiatives in recent times. The government-sponsored Delhi Mumbai Industrial Corridor (DMIC) project is one such step. It entails construction of several industrial zones and enabling infrastructure in the form of roads, railway, ports, air connectivity, etc. along the corridor which will run through six states between the national capital and financial capital. The project is expected to double employment potential, triple industrial output and quadruple exports from the region in five years from the time of its completion, which has been pegged at 2019. Similarly, other industrial corridors such as Chennai Bangalore Industrial Corridor (CBIC), etc. have also been approved by the union government and work on them will begin soon.
In addition to this, the centre launched the National Manufacturing Policy in 2011 aimed at increasing the share of manufacturing sector in GDP to 25% and creating 100 million jobs by 2025. As a part of the NMP, the government has also cleared 8 National Investment and Manufacturing Zones (NIMZs) along the DMIC.
Apart from this, the state governments should reform their rigid labour laws so that small and medium enterprises can grow to the next level and employ more people. Power sector reforms should be undertaken with priority to give assured and continuous power supply to industries. Better technology and value addition in manufacturing should be encouraged by the government. Finally, the various regulatory measures that would improve the business regulatory environment in India should also be undertaken on a war footing.
